Hong Kong tax law change luring Chinese giants

At least three major Mainland Chinese entities are planning to set up corporate treasury centres (CTCs) in Hong Kong, following a tax change there last year, with up to 30 more firms considering the move, the Hong Kong Monetary Authority has announced.

According to HKMA chief executive Norman Chan Tak-lam, three central state-owned Chinese enterprises – including China Huaneng Group, the State Power Investment Corp and China Three Gorges Corp – are among the entities that have “expressed their intention to establish or expand their CTCs in Hong Kong in the near future”.

Chan’s comments were contained in a statement published yesterday on the HKMA’s website.

A number of other large Mainland corporations, including China National Petroleum Corp, China General Nuclear Power Corp, SAIC Motor Corp, and TCL Corp “are spearheading preparations for the setting up or expansion of their CTCs here to support their overseas operations”, Chan (pictured left) added.

Under the changes to the tax rules that were brought in last year, qualifying CTCs will see profit tax rates on specified activities cut by 50%, which is what Chan says is behind the surge of interest in Hong Kong on the part of the Mainland Chinese companies.

“Very often, the operation of CTCs requires the support of liquidity management, financing, risk management, taxation and legal advisory services. As Mainland enterprises are actively expanding in the international market under the ‘Go Global’ initiative, the transfer and allocation of funds overseas has become even more important,” Chan added.

‘World-class talent available to recruiters’

“They require the support of an efficient CTC to centralise the management of their treasury and risk-management activities.

“With its wide-ranging strengths, including a premier financial market, the largest offshore renminbi market in the world, as well as world-class talent in the financial and related fields, Hong Kong is the ideal location for Mainland enterprises to set up their CTCs to support overseas business expansion.”

According to Chan, the establishment of CTCs in Hong Kong by Mainland Chinese businesses may well see multinational companies ultimately relocating their regional head offices there from the Mainland, given an existing tendency for such multinationals to base their regional head offices alongside their regional CTCs.

The reported interest in key major Chinese companies in Hong Kong’s new CTC structure will be seen by some in the Special Administrative Region as a vindication of the HKMA’s efforts to lobby Mainland firms for their CTC business, which included trips to major Chinese cities to personally lobby various institutions, by Chan and a specially-appointed HKMA team.